Should you redeem foreign investments?

Should you redeem foreign investments?
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First Published: Wed, Dec 14 2011. 09 22 PM IST

Updated: Wed, Dec 14 2011. 09 22 PM IST
If you are a high networth individual (HNI), it’s likely that a part of your portfolio is invested in international markets, either through direct equities or mutual funds. If that is so, here is some good news for you: this may be the right time for you to redeem your investments abroad.
With the rupee depreciating to as low as 53.5 against the dollar, you will now get more on the amount invested earlier. From a level of 44.4 at the end of July, the rupee depreciated to 50 in September. What’s more, it may continue to remain weak in the near future as well.
When and how will you profit?
You stand to gain through redemption even if the international fund/stock you have invested in has made a minor loss. Here’s an example. Suppose you invested Rs 1 lakh around a year ago, when the rupee was around 45 against the dollar. Effectively, you invested $2,222. Assuming that you have made a loss of 10%, your investment would stand at about $2,000. If you were to redeem your this $2,000 at this point of time, you would get this Rs 1,05,999 (assuming an exchange rate of 53), a profit of around 6%.
However, in case of significant losses, rupee depreciation will help you recover only a part of your losses.
In a no-profit-no-loss scenario, you would stand to gain. If your investments are already making a profit, your gains will become larger.
Should you wait for further depreciation?
Experts feel currency may depreciate further. Says D.K. Joshi, chief economist, Crisil Ltd, “The exchange rate is dependent on the level of demand and supply. As many companies have to repay their short-term loan, which they have taken from abroad, the demand for dollar remains high. At the same time, due to lower participation of foreign institutional investors the supply of dollar remains subdued. The situation may continue to remain the same in the near future.”
By remaining invested, you may make more profit. “If the rupee depreciates to 55 against the dollar, one would make more profit provided your investments remain at same level,” says Dhirendra Kumar, chief executive officer, Value Research, a mutual fund tracking firm.
However, redemption from any investment should depend on whether the goal for which you saved has been met. The same should be true for international investments, too. Says Kartik Jhaveri, founder and director, Transcend Consulting (India) Pvt. Ltd, a Mumbai-based financial planning firm, “The decision to redeem should depend upon whether your objective has been achieved and also if there are better avenues whereby you would park the redeemed amount.” So don’t base your decision merely on rupee depreciation. Instead of timing the market, set timelines for your goals and redemption.
abhishek.a@livemint.com
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First Published: Wed, Dec 14 2011. 09 22 PM IST